Thursday, September 15, 2016

PAUL ROMER BLASTS AGAINST USING FAULTY MATHS IN ECONOMICS

Ths morning I read a paper by Paul Romer critiquing the modern maths of macroeconomics (The Trouble with Macroeconomics, 14 September, 2016) HERE

Paul Romer has form in the maths of growth theory and macro - he achieved analytical praise for his work. For his place in the pantheon of mathematical modelling, see David Warsh, “Knowledge and the Weath of Nations: a story of economic discovery”, 2006 Norton.

In a paper published 14 September, Paul Romer demolishes several analytical maths devices recently constructed to model macroeconomics. At times Romer borders on polite sarcasm at the authors of these maths models, basically suggesting that the authors are ‘making it up’.

No matter what your competence level in maths, I strongly suggest that readers follow the link and get a feel for what Romer thinks is wrong with these models. He also side swipes at potential critics of his interventions because such devastating attacks on their authors could affect their careers and their self-beliefs. I would have thought it more devastating for people if the maths used to model a macro economy produce perverse results and people are impoverished as a result.

My views on mathematical modelling are well known - I am sceptial that people in economies follow behaviours susceptible to maths - and I am not convinced that maths and economics can be bedded together like maths and physics.

2 Comments:

The problem here isn't with maths. Its not as if people just started using non-maths versions of the current macro models everything would be ok. For example the problems with DSGE models would not go away if a non-mathematical version of such models was suddenly developed and used in place the current math versions. Or would representative agent models instantly become perfect if they were just translated from maths into English? I think not. There is noway that the problems are that simple. Maths is just a tool, its only "good" or "bad" depending on how it is used. A hammer is good tool if you are building a house but a bad tool if you hit someone over the head with it. But to blame the hammer if someone is hit with it is just stupid. Whatever problems there are with macro modelling are due to problems with the underlying models, whether or not they are expressed in mathematical terms. In fact one could ask if the whole idea of macro, that is thinking in terms of relationships between aggregates, is not a large part of the problem. But this is still a problem whether or not the model is written in English or mathematics. The problems are much deeper than what language the models are written in.

PaulI take the point you make about the use of maths and suggest that macro maths are not very good, metaphorically speaking, hammers. Fads come and go in macro maths. I have my doubts that they are as good as their temporary lives in their short lives warrant before being replaced by another 'maths' solutions, usually accompanied by Nobel prizes, before other claimants emerge with 'better' models. Sometimes they hang around as with 'general equilibrium' theories - also with their Nobel Prizes. Economics seems to me to be over flush with equilibrium ambitions. Even the simple micro-equilibrium of supply and demand (after Marshall in the late-19th century - does anybody really believe the narrative of S-D diagrams?). Has anybody seen an equilibrium in the real world. So dis-aggregating and dis-equillibrium seems evasive of content too. Astronomical data is not comparable to economic data. Smith's ambitions for Newtonian predictability in economics has not yet been realised.I remain a sceptic.Gavin